Boxer Manny Pacquiao: 'I Am Not A Criminal Or A Thief'

Robert W. Wood
, ContributorI focus on taxes and litigation.Opinions expressed by Forbes Contributors are their own.

Manny Pacquiao during the opening ceremony of the NCAA Season 87 at the Araneta Coliseum. (Photo credit: Wikipedia)

Boxing has rules. So do laws, even tax laws. Yet famed Filipino boxer Manny Pacquiao can cry foul. As he tries to work out a tax dispute, the world-champion boxer and icon of the Philippines had accounts in two banks frozen. The Philippine tax authorities say they are trying to collect 2.2 billion pesos ($50.3 million) in unpaid taxes, interest and penalties. See Pacquiao’s Bank Accounts Seized in Philippine Tax Row.

This is hardly the first round in the long-running tax dispute. It even lead to his wife’s accounts being frozen. The Philippines Bureau of Internal Revenue issued a warrant to 36 banks to seize Pacquiao’s assets after it claims he failed to prove he paid taxes in the U.S. The dispute is all about what he earned for boxing in the U.S. and what was taxed where.

So far, rather than official IRS documents, the boxer’s promoter, Top Rank Inc., has evidently submitted correspondence showing that he did pay U.S. taxes via withholding. The promoter says it also asked for certification from the IRS months ago, but notes that such documentation takes time. See Manny Pacquiao's Promoter Says Fighter Will be Vindicated Over Tax Dispute.

The versatile boxer has won world boxing championships in eight weight classes. The world-class athlete is also a lawmaker representing Sarangani province. Still, Philippine tax authorities want him to produce his U.S. tax records. For many, paying tax in multiple states or countries and divvying up income might sound like a nice problem to have.

But sometimes being taxed more than once really smarts. In fact, some professional athletes are so worried about taxes that they decline to play in certain locations. In early 2013, Michael Koncz sparked controversy by stating that Mr. Pacquiao would likely avoid fighting in the U.S. because of its high taxes. Fighting outside the U.S. and in lower tax rate countries simply makes sense.

Because Pacquiao is neither a U.S. resident nor a citizen, he will not pay U.S. tax on monies earned elsewhere. Foreign athletes must file U.S. income tax returns and face special withholding rules. They generally must pay U.S. income tax on their U.S.-source income.

What is considered U.S.-source can be debated but includes pay for performances, endorsements, merchandise sales, and royalty or other income closely related to the event. The IRS has a special program targeting foreign athletes and entertainers. Depending on an athlete’s home country, treaty benefits may apply.

Even so, disputes are common about how much income to allocate to particular countries and where endorsement earnings should be taxed. For example, South African golfer Retief Goosen twice won the U.S. Open. His success rate wasn’t quite as good in U.S. Tax Court. See Goosen v. Commissioner.

Goosen's case concerned what was U.S.-source income subject to tax by the IRS. Mr. Pacquiao's case may be simpler. The fighter claims to have paid the correct taxes in the United States. He also says he was not required to pay additional tax in the Philippines under a treaty preventing double taxation.

"I am not a criminal or a thief," he said. "The money ... is not stolen... This came from all of the punches, beatings, blood and sweat that I endured in the ring."

You can reach me at Wood@WoodLLP.com. This discussion is not intended as legal advice, and cannot be relied upon for any purpose without the services of a qualified professional.